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Same-day delivery ambitions drive North Jersey warehouse market Warehousing moves north as e-tailers aim to be closer to same-day service for New York City

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The new Amazon.com fulfillment hub in Robbinsville might grab the headlines, but the intersection of e-commerce and New Jersey's industrial space exists well beyond Exit 7A.

Case in point: Amazon's second act in the Garden State.

The e-tail giant plans to open another warehouse 40 miles to the north, in the Avenel
section of Woodbridge. That move, experts say, pushes it within reach of same-day delivery to the consumer market surrounding New York City — and the quest to cut shipping times may drive other retailers to space up the New Jersey Turnpike, too.

"They're going to need to be closer in, with smaller facilities, so they can get products from the facilities to the customer," said Stanley Danzig, executive director with Cushman & Wakefield, in East Rutherford. He later added: "It's not to say they can't do same-day from 7A and 8A, but it's just going to be easier to do" from sites farther north.

The e-commerce trend is stretching as far north as the Meadowlands and port submarkets, touching everything from home goods to groceries. And it's fueling a larger move toward multichannel retailing that has a growing impact on industrial space.

In 2010, e-commerce and retail users accounted for 17 percent of leasing activity in northern and central New Jersey, counting deals larger than 100,000 square feet, according to Cushman & Wakefield. They accounted for 32 percent of such deals in 2012, and more than 47 percent year-to-date through early last month.

A national report released in May by Cassidy Turley said retail giants like Nordstrom and Wal-Mart are in the market for e-commerce fulfillment space. But insiders say smaller firms, like boutique lingerie shops, also are expanding their platforms, driving space needs of all sizes as they try to fulfill orders made online, on smartphones and in stores.

Adapting space

In New Jersey, demands from smaller shops have fed third-party logistics providers. Ernie Christoph, with Hartz Mountain Industries, estimated in the last two to three years, users in the firm's Meadowlands-area portfolio have adapted about 250,000 square feet of space for e-commerce. That involves installing sophisticated conveyer systems, he said, noting he has seen e-commerce users of as small as 10,000 square feet.

And whether the tenant is a retailer or a third party, North Jersey's appeal is the same, said Christoph, the senior vice president of sales and leasing for Hartz.

"We're closer to the end user, and a lot of their business comes in through the port," so the region offers a dual benefit, he said.

E-commerce also has helped fill new development projects up and down the Turnpike. Peapod, the online grocery seller, will occupy 345,000 square feet in a Jersey City distribution center being built by Prologis Inc.

"It's all about the delivery — how quickly you can get it and how good your customer service is," said David Knee, a Jones Lang LaSalle managing director in New Jersey. "They picked Jersey City because that was an opportunity to serve a wider array of customers."

For IDI, an Atlanta-based developer with facilities in South Brunswick, the e-commerce wave has caused it to think bigger, when it comes to construction.

Fifteen years ago, 400,000 square feet "would have been a big building for us," said Frank Petkunas, a regional managing director based in Philadelphia. "Now, on a speculative basis, a million square feet is not out of the question, in the right market."

And with new warehouses in past years, he said, "we used to sort of look for what products were hot. Now we're now looking at what medium is hot, and what delivery channel is hot. And that's what we're sort of building for."

Those bets paid off in April, when Williams-Sonoma leased IDI's new 750,000-square-foot facility at Exit 8A, which started as a speculative project. While Petkunas said he wasn't familiar with how the company would use the space, the San Francisco-based home goods seller has been vocal about its model: In a May earnings call, an executive said e-commerce sales accounted for more than 90 percent of its direct-to-customer revenue in the first quarter.

IDI is building another speculative project — a 450,000-square-foot building alongside the South Brunswick property — that Petkunas hopes will draw interest from e-commerce tenants. Other speculative industrial construction is ongoing in places such as Elizabeth, Newark and Edison, ranging from 277,000 to 524,000 square feet.

Frank Kobola, a Fairfield-based broker, said new or converted industrial buildings should be equipped to handle high volumes if they're being marketed to e-commerce users. That means designs allowing for better truck access, extra doors and ceiling heights of at least 32 feet — not the 24-foot clearances of years past.

"The guy who can now build something in that area and make it taller, he's going to attract these e-commerce fulfillment centers," said Kobola, president of Kobola Realty. "I think that's where the future is going to be with online retail."

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